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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Commission File Number: 0-17436
LAS VEGAS DISCOUNT GOLF & TENNIS, INC.
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(Exact name of small business issuer as specified in its charter)
Colorado 84-1034868
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(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5325 South Valley View Boulevard, Suite 4, Las Vegas, Nevada 89118
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(Address of principal executive offices including zip code)
(702) 798-7777
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No___
As of August 12, 1998, 5,831,807 shares of common stock, no par value per
share, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes___ No X
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LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
FORM 10-QSB
INDEX
Page No.
Part I: Financial Information
Item 1. Financial Information:
Unaudited Condensed Consolidated Balance Sheets 3
Unaudited Condensed Consolidated Statements of
Operations 5
Unaudited Condensed Consolidated Statements of
Cash Flows 9
Notes to Unaudited Condensed Consolidated
Financial Statements 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
Part II: Other Information
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
2
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LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
1998 1997
----------- -----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 92,000 $ 384,000
Accounts receivable 395,000 20,000
Inventories 635,000 479,000
Due from Affiliated Store 45,000 161,000
Due from officer 3,000 3,000
Due from related entity - 565,000
Prepaid expenses and other 253,000 3,000
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Total current assets 1,423,000 1,615,000
Leasehold improvements and equipment, net 296,000 310,000
Project development costs 19,837,800 7,850,000
Other long term receivables 232,000 227,000
Deposit for land lease 339,000 434,000
Other assets 144,000 96,000
Net assets of discontinued operations - 3,250,000
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$22,271,800 $13,782,000
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, December 31,
1998 1997
----------- -----------
(Unaudited)
CURRENT LIABILITIES:
Bank line of credit $ - $ 668,000
Current portion of notes payable 5,000,000 500,000
Current portion of obligations under
capital leases 11,000 22,000
Accounts payable and accrued
expenses 5,469,250 1,414,000
Due to Affiliated Store 1,093,000 279,000
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Total current liabilities 11,573,250 2,883,000
Note payable to shareholder 1,250,000 600,000
Obligations under capital leases, net
of current portion 750 32,000
Deferred income 564,000 517,000
Deferred tax liability 743,000 743,000
Preferred stock of subsidiary 5,000,000 5,000,000
Minority interest 940,100 1,625,000
SHAREHOLDERS' EQUITY:
Convertible, preferred stock, Series A,
no par value; 5,000,000 shares authorized;
no shares issued and outstanding at
June 30, 1998 and December 31, 1997 - -
Common stock, no par value; 15,000,000 shares
authorized; 5,831,807 shares issued and
outstanding at June 30, 1998 and
December 31, 1997 3,876,000 3,876,000
Accumulated deficit (1,675,300) (1,494,000)
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Total shareholders' equity 2,200,700 2,382,000
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$22,271,800 $13,782,000
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
For the Three Months
Ended June 30,
1998 1997
----------- -----------
(Unaudited) (Unaudited)
REVENUES:
Net merchandise sales $ 881,000 $1,317,000
Royalties 13,000 6,000
Other 9,000 9,000
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Total revenues 903,000 1,332,000
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OPERATING EXPENSES:
Retail cost of sales 671,000 1,011,000
Selling, general and administrative 1,216,000 534,000
Depreciation 14,000 -
SportPark development costs - 75,000
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Total operating expenses 1,901,000 1,620,000
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OPERATING LOSS (998,000) (288,000)
Interest income, net 1,900 98,000
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LOSS FROM CONTINUING OPERATIONS BEFORE
PROVISION FOR INCOME TAXES AND
MINORITY INTEREST (996,100) (190,000)
PROVISION (BENEFIT) FOR INCOME TAXES - -
---------- ----------
LOSS FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST (996,100) (190,000)
MINORITY INTEREST 317,000 29,000
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LOSS FROM CONTINUING OPERATIONS (679,100) (161,000)
DISCONTINUED OPERATIONS:
Loss from operations of the All-American
Golf, LLC, net of minority interest
share of $29,000 (59,000) -
Gain on sale of investment in
All-American Golf, LLC, net of
minority interest share of $545,000 1,094,000 -
Additional gain on disposal of
franchise and wholesale operations
less applicable income taxes
of $450,000 - 113,000
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NET INCOME (LOSS) $ 355,900 $ (48,000)
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LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
For the Three Months
Ended June 30,
1998 1997
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EARNINGS PER SHARE:
Basic and Diluted earnings (loss) from
continuing operations $ (.12) $ (.03)
Basic and Diluted earnings (loss) from
net (income/loss) per Share $ .06 $ (.01)
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
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LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
For the Six Months
Ended June 30,
1998 1997
----------- -----------
(Unaudited) (Unaudited)
REVENUES:
Net merchandise sales $ 1,632,000 $ 2,278,000
Royalties 13,000 12,000
Other 46,000 81,000
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Total revenues 1,691,000 2,371,000
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OPERATING EXPENSES:
Cost of sales 1,253,000 1,556,000
Selling, general and administrative 1,974,000 1,148,000
Depreciation 19,000 -
SportPark development costs - 152,000
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Total operating expenses 3,246,000 2,856,000
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OPERATING LOSS (1,555,000) (485,000)
Interest income, net 1,700 167,000
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LOSS FROM CONTINUING OPERATIONS BEFORE
PROVISION FOR INCOME TAXES AND
MINORITY INTEREST (1,553,300) (318,000)
PROVISION (BENEFIT) FOR INCOME TAXES - -
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LOSS FROM CONTINUING OPERATIONS BEFORE
MINORITY INTEREST (1,553,300) (318,000)
Minority Interest 481,000 (599,000)
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LOSS FROM CONTINUING OPERATIONS (1,072,300) (917,000)
DISCONTINUED OPERATIONS:
Income (loss) from operations of
discontinued franchise and
wholesale operations - (159,000)
Gain on disposal of franchised
wholesale operations (less
applicable income taxes of
$575,000) - 2,954,000
Loss from operations of the
All-American Golf, LLC, net minority
interest share of $102,000 (203,000) -
Gain on disposal of investment in
All-American Golf, LLC, net of
minority interest share of $545,000 1,094,000 -
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NET INCOME (LOSS) $ (181,300) $ 1,878,000
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7
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LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
For the Six Months
Ended June 30,
1998 1997
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EARNINGS PER SHARE:
Basic and Diluted earnings (loss) from
continuing operations $ (.18) $ (.16)
Basic and Diluted earnings (loss) from
net income (loss) per Share $ (.03) $ .32
The accompanying notes are an integral part of these condensed consolidated
financial statements.
8
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LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,
1998 1997
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(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (181,300) $ 1,878,000
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Minority interest (583,000) 599,000
Depreciation and amortization 114,000 17,000
Gain on sale of franchise and
wholesale operations - (3,529,000)
Gain on disposal of investment in the
Callaway Golf Center (1,094,000) -
(Increase) decrease in:
Accounts receivable (380,000) (199,000)
Inventories (108,000) (303,000)
Prepaid expenses and other assets (298,000) 114,000
Increase (decrease) in:
Accounts payable and accrued expenses 3,999,250 1,533,000
Deferred income 47,000 (63,000)
Income tax payable - 275,000
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Net cash provided by operating
activities 1,515,950 322,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Project development costs (11,987,700) (5,749,000)
Leasehold improvement expenditures (5,000) (14,000)
Proceeds from sale of All-American
Golf 1,250,000 4,550,000
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Net cash flows used in investing
Activities (10,742,700) (1,213,000)
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LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,
1998 1997
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(Unaudited) (Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on bank line of credit, net (668,000) (398,000)
Proceeds from notes payable 7,500,000 -
Payments on notes payable and capital
lease obligations (42,250) (111,000)
Proceeds from note payable to share-
holder 1,050,000 1,315,000
Payments on note payable to shareholder (400,000) (631,000)
Increase (decrease) in amounts due to
Affiliate Store and Related Entities 1,495,000 -
Proceeds from minority interest in
Callaway Golf Center - 750,000
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Net cash used by financing activities 8,934,750 925,000
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NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (292,000) 34,000
CASH AND CASH EQUIVALENTS
-Beginning of period 384,000 6,457,000
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CASH AND CASH EQUIVALENTS - End of period $ 92,000 $6,491,000
========== ==========
For the Six Months Ended June 30,
1998 1997
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash payments made for interest $ 87,715 $ -
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Forgiveness of note payable $ 3,000,000 -
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. CONDENSED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements include
the accounts of Las Vegas Discount Golf & Tennis, Inc. ("LVDG"), a Colorado
corporation, and its subsidiaries, Saint Andrews Golf Corporation ("SAGC"),
LVDG Development Corporation ("Development") and LVDG Rainbow, Inc.
("Rainbow"). LVDG and its subsidiaries are collectively referred to as "the
Company". All significant inter-company accounts and transactions have been
eliminated.
The accompanying condensed consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission relating to interim financial statements.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. In the opinion of management, all
adjustments necessary to present fairly, in all material respects, the
financial position of the Company as of June 30, 1998 and December 31, 1997,
and the results of its operations and cash flows for the three and six months
ended June 30, 1998 and 1997, respectively, have been made.
Certain reclassifications have been made to previously reported amounts to
conform them to current classifications.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
These condensed consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997.
The Company's current operations consist of one Company-owned retail store in
Las Vegas, Nevada and the development and anticipated operation of
sport-oriented theme parks under the name "All-American SportPark". The
Company's concept of a sport-oriented theme park consists of a
baseball-batting stadium, Go-Kart racing tracks, video arcade, retail and
restaurant facilities.
2. SALE OF ASSETS AND DISCONTINUED OPERATIONS
On February 26, 1997, the Company and SAGC completed the sale of certain of
their assets and transferred certain liabilities to an unrelated buyer who has
incorporated under the name Las Vegas Golf & Tennis, Inc. in a transaction
whose terms were substantially in accordance with the "Agreement for the
Purchase and Sale of Assets". The total consideration received was $5.3
million, of which $4.6 million was paid in cash, $264,000 was received in the
form of a short-term receivable, $200,000 was placed in escrow pending the
accounting for inventory and trade payables, and $200,000 was placed in escrow
for two years to cover potential indemnification obligations. Of the total
consideration received, approximately $2.5 million was allocated to LVDG.
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This transaction resulted in the disposal of the Company's franchise business,
wholesale business, and the three Company-owned retail stores in Southern
California, and the assignment of all franchise rights, trade names, and trade
marks associated with the business. The agreement also contains certain
provisions not to compete in the franchised retail golf equipment business.
Accordingly, the sale of all assets, and assumption of liabilities and rights
related to these businesses have been presented as "Discontinued Operations"
in the accompanying condensed consolidated financial statements.
During 1997, SAGC and Callaway Golf Company ("Callaway") formed All-American
Golf LLC, to construct, manage and operate the "Callaway Golf Center", a
premier golf facility at the site of the All-American SportPark. SAGC
contributed the value of expenses incurred relating to the design and
construction of the golf center plus cash in the combined amount of $3 million
for 80% of the membership units. Callaway contributed equity capital of
$750,000 for the remaining 20% of the membership units and loaned the LLC
$5.25 million (the "Callaway loan").
The Callaway loan bears interest at a rate of 10% per annum with monthly
interest payments commencing 60 days after the opening of the golf center on
October 1, 1997. All-American Golf was unable to make the scheduled interest
payments for 1997 and 1998. Accordingly, on March 18, 1998, All-American Golf
entered into a forbearance agreement with Callaway which cured the default and
established terms to repay the amounts in arrears.
On May 5, 1998, SAGC sold its 80% interest in All-American Golf to Callaway in
exchange for $1.5 million in cash and the cancellation of a $3 million
collateralized note evidencing amounts which Callaway had loaned to the
Company in March 1998, and related accrued interest thereon. Of the
consideration, $500,000 was withheld by Callaway until it has secured all
rights necessary to operate the Callaway Golf Center, of which $250,000 was
collected by June 30, 1998. In connection with the sale of its membership
units, SAGC resigned as manager of the LLC and agreed not to compete with the
Callaway Golf Center in Clark County, Nevada for a period of two years. The
agreement also provides for a buy back option to the Company which enables it
to repurchase its 80% equity ownership for a period of 2 years on essentially
the same financial terms that it sold its interest to the Callaway Golf
Company.
Results of operations of All-American Golf through its disposal date have been
presented as Discontinued Operations in the unaudited condensed consolidated
statements of operations and were as follows for the three and six months
ended June 30, 1998.
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Three months Six months
Ended June 30, 1998 Ended June 30, 1998
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Revenues $ 500,000 $ 725,000
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Expenses:
Cost of revenue 501,000 716,000
Depreciation and amortization 113,000 169,000
Amortization of preopening costs 23,000 33,000
Interest expense 135,000 188,000
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Total expenses 772,000 1,106,000
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Net loss before minority
interest (272,000) (381,000)
Minority interest in net loss 54,000 76,000
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Net loss (218,000) $(305,000)
========== ==========
Assets and liabilities of All-American Golf consisted of the following on
December 31, 1997:
CURRENT ASSETS:
Cash and cash equivalents $ 45,000
Accounts receivable, net 58,000
Due from Affiliated Store 33,000
Prepaid expenses and other 28,000
Preopening costs 100,000
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Total current assets 264,000
Leasehold improvements and
equipment, net 9,841,000
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10,105,000
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CURRENT LIABILITIES:
Current portion of obligations
under capital leases 65,000
Accounts payable and accrued
expenses 769,000
Due to Affiliated Store 21,000
Due to Related Entities 565,000
-----------
Total current liabilities 1,420,000
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LONG TERM LIABILITIES:
Obligation under capital leases,
net of current portion 185,000
Note payable 5,250,000
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Total long term liabilities 5,435,000
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Total liabilities 6,855,000
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Net assets of discontinued operations $ 3,250,000
===========
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The Company recorded a gain of $1,638,900 on the disposal of its 80% interest
in All-American Golf.
3. PROPOSED MERGER WITH SAINT ANDREWS GOLF CORPORATION
On January 20, 1998, the officers of LVDG and SAGC executed a merger agreement
pursuant to which SAGC would possibly merge with and into LVDG which if it
occurred is intended to constitute a tax-free plan of reorganization. As a
result, the separate corporate existence of SAGC could cease and LVDG would
change its name to All-American SportPark, Inc. to reflect the primary
business of the surviving corporation.
At the effective date of the potential merger each share of SAGC's common
stock issued and outstanding immediately prior to the effective date (except
for shares of SAGC's common stock held by LVDG) are planned to be converted
into 2.4 shares of LVDG common stock. Each share of SAGC's Series A Preferred
Stock would be converted into 2.4 shares of LVDG Series B Preferred Stock, and
each share of SAGC's common stock held by LVDG immediately prior to the
effective date and all rights in respect thereof would be canceled. This
could result in the current shareholders of SAGC (other than LVDG) owning
approximately 38.2% of the surviving corporation, assuming there are no
dissenting shareholders.
At the effective date each option or warrant granted by SAGC to purchase
shares of SAGC's common stock which is outstanding and unexercised immediately
prior to the effective date would be assumed by LVDG and converted into an
option or warrant to purchase shares of LVDG common stock in such number and
at such exercise price similar to that previously discussed (2.4 to 1). The
exercise price per share of LVDG common stock under the new option or warrant
would be equal to the quotient of the exercise price per share of SAGC's
common stock under the original option or warrant divided by the exchange
ratio.
4. GOING CONCERN MATTERS
The accompanying condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
As shown in the accompanying financial statements the Company incurred
operating losses of $1,553,300 and $318,000 for the periods ended June 30,
1998 and 1997, respectively. Additionally, as of June 30, 1998 the Company
had negative working capital of approximately $10.2 million. The Company has
entered into several short-term financing transactions as noted below in order
to fund ongoing operating cash requirements as well as the continuing
construction of the All-American SportPark. Additionally, the Company sold
its golf distribution business to an unrelated third party on February 26,
1997 and realized a gain of $2,954,000 on that sale. The Company also sold
its 80% ownership interest in All-American Golf to the Callaway Golf Company
on May 5, 1998 and realized a gain on the sale of $1,638,900. Cash proceeds
from these transactions increased the Company's working capital which financed
operations and were invested in the All-American SportPark.
The Company's president has loaned SAGC $1.05 million during the first six
months of 1998, of which $.4 million has been paid as of June 30, 1998. The
loans are due on various dates in 2001 and bear interest at a rate of 10% per
annum.
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On February 5, 1998 and May 14, 1998 SAGC secured a $5.0 million short-term
bank loan bearing interest at a rate of 10% per annum. This loan requires
interest only payments, which commenced on March 10, 1998, with the full loan
plus all unpaid interest due August 10, 1998. The Company is in on-going
discussions with the bank to extend the due date and increase the loan amount.
On May 7, 1998, SAGC received a Bridge Mortgage Loan Commitment Letter (the
"Commitment Letter") from First Connecticut Consulting Group, Inc. (the
"Lender") pursuant to which the Lender would loan up to $18 million to SAGC
for one year. The loan would bear interest at the rate of 12% per annum and
be secured by a first mortgage on all the All-American SportPark in Las Vegas
and regard a commitment fee of $180,000. On June 9, 1998 the Company was
informed by the Lender that they were unable to meet their stated commitment.
The Company is currently evaluating its options for obtaining a refund of the
commitment fee and other expenses paid to First Connecticut Consulting Group,
Inc. as well as recovery of damages to the Company.
The Company's continuation as a going concern is dependent upon its ability to
generate positive cash flows and to obtain additional financing or refinancing
which will be required in order to complete the All-American SportPark. SAGC
currently has not secured sufficient financing to complete construction of the
SportPark portion of the Las Vegas facility. SAGC expects to receive the
balance of the financing from a combination of sources including outside
equity and/or debt investors sponsorship fees and bank financing. There is no
assurance that financing will be obtained from any of these sources. The
financial statements do not include any adjustments relating to the
recoverability and classification of assets and liabilities that might be
necessary should the Company be unable to continue as a going concern.
5. EARNINGS PER SHARE AND STOCK OPTIONS
Basic loss per share from continuing operations and basic net income (loss)
per share for the three and six months ended June 30, 1998 and 1997, are
computed by dividing the loss from continuing operations and net income
(loss), by the weighted average number of shares of common stock outstanding
during the respective periods presented. As required by generally accepted
accounting principles, and because the Company has incurred losses from
continuing operations for all periods presented, no effect has been given for
the effects of potentially issuable dilutive securities. Accordingly, diluted
loss per share from continuing operations and diluted net income (loss) per
share is equal to basic loss per share from continuing operations and basic
net income (loss) per share, respectively, for all periods presented. The
weighted average number of shares of common stock outstanding used in the
earnings per share calculation for all periods presented is 5,831,807 shares.
6. RELATED PARTY TRANSACTIONS
The Company has extensive transactions and relationships with its chairman and
principal shareholder, a retail store owned by the Company's chairman (the
"Affiliated Store") and SAGC. Because of these relationships, it is possible
that the terms of transactions between these parties are not the same as those
which would result from transactions among unrelated parties.
The Affiliated Store that operates in Las Vegas, Nevada is not a Company
franchise and is not a franchise of SAGC. As a result, prior to February 26,
1997 when the franchise system was sold, this store paid no royalties to SAGC
but purchased merchandise at the same cost as SAGC. The Affiliated Store at
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that time also benefited from SAGC's activities, including any local and
national advertising conducted by SAGC. The Affiliated Store and the Company
owned store shared advertising costs equally in the Las Vegas market area.
Sales of merchandise made to the Affiliated Store are recorded at the
Company's cost and totaled $76,000 and $57,000 for the six months ended June
30, 1998 and 1997, respectively.
7. PROJECT DEVELOPMENT COSTS
SAGC is currently engaged in the final phase of construction related to the
All-American SportPark. The All-American SportPark in Las Vegas, Nevada is
currently under construction and is expected to be completed in August 1998 if
the Company is able to secure the necessary financing to complete the
construction. Capitalized project development costs represent the continuing
construction costs of the All-American SportPark and totaled approximately
$19,837,800 as of June 30, 1998. These costs consist primarily of $17,506,300
in buildings and land improvements, and $2,115,800 in furniture and equipment
and $215,700 in capitalized interest costs during construction. Additional
costs relating to the project have been expensed and include a loan deposit of
$339,000 and $784,000 in pre-opening costs.
8. LEASES
SAGC's lease for approximately 23 acres of undeveloped land on which the
All-American SportPark is being constructed became effective on February 1,
1998. The base rental on the lease is $18,910 per month and contains
contingent rentals based on a percentage of gross revenues in the park. The
lease term is 15 years with two five-year renewal options.
9. COMMITMENTS AND CONTINGENCIES
The Company has employment agreements with its President, as well as other key
employees, which require the payment of fixed and incentive based
compensation.
In December 1994, SAGC entered into an agreement with Major League Baseball
("MLB") concerning a license for the use of MLB logos, trade marks and mascots
in the decor, advertising and promotions of the Company's Slugger Stadium
concept. This agreement was amended during 1997. Pursuant to the amended
agreement, SAGC holds the exclusive right to identify its indoor and outdoor
baseball batting stadiums as Major League Baseball Slugger Stadiums. The
license covers the United States. SAGC has made the required license payments
for 1995, 1996 and 1997. In addition to and as an offset against the minimum
payments set out above, SAGC is required to pay to MLB a royalty based on the
revenue from the batting cages. SAGC's right to exclusively use MLB logos and
other marks at its baseball-batting stadiums is dependent upon certain
conditions set forth in the agreement.
In May 1996, SAGC entered into an agreement with Jeff Gordon, the 1997 NASCAR
Winston Cup Champion, 1997 Daytona 500 Champion, 1997 Coca-Cola 600 Champion,
1995 Winston Cup Champion and former NASCAR Winston Cup Rookie of the year, to
serve as spokesperson of the NASCAR SpeedPark through April 30, 2000. Mr.
Gordon was granted options under the Company's stock option plan. On
November 20, 1997, the agreement with Mr. Gordon was amended to, among other
things, provide for an annual fee.
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SAGC has a license agreement with The National Association of Stock Car Auto
Racing, Inc. ("NASCAR") for the operation of SpeedParks as a part of the
All-American SportPark. The agreement, as amended, provides that the Company
has a license to use certain trademarks and service marks in the development,
design and operation of go-kart racing facilities having a NASCAR racing theme
in the territories of Las Vegas, Nevada and Southern California.
In January 1997, SAGC entered into an agreement with the Pepsi-Cola Company
("Pepsi") concerning an exclusive sponsorship agreement. Under the agreement,
Pepsi would receive certain exclusive rights related to soft drinks, tea
products, juice products, bottled water and similar products in exchange for a
series of payments totaling $1,250,000 beginning when the SportPark opens.
SAGC received $250,000 as the first payment on this contract on December 31,
1997. The remaining amounts are due annually over a four year period starting
with the commencement of operations of the All-American SportPark. The rights
granted to Pepsi are to include that Pepsi's products will be exclusively sold
for the categories listed, that only Pepsi identified cups will be used in the
SportPark, and that Pepsi would have the right to name the multipurpose arena
the AllSport Arena. In addition, Pepsi will provide the equipment needed to
dispense its products at the SportPark. The agreement with Pepsi will provide
that SAGC and Pepsi will participate in joint marketing programs such as
promotions on Pepsi's products and local radio advertising.
In September 1997, the Company entered into a lease and concession agreement
with Sportservice Corporation ("Sportservice") which provides Sportservice
with the exclusive right to prepare and sell all food, beverages (alcoholic
and non-alcoholic), candy and other refreshments throughout the All-American
SportPark, including the Callaway Golf Center, during the ten year term of the
agreement. Sportservice has agreed to pay rent based on a percentage of gross
sales depending upon the level of sales, whether the receipts are from
concession sales, the Arena restaurant, the Clubhouse, vending machines,
mobile stands, or catering sales. Sportservice is expected to invest
approximately $3.85 million into the concessions and operations which includes
all food service leasehold improvements. The agreement also provides
Sportservice with a right of first refusal for future parks to be built by the
SAGC in consideration for a $100,000 payment. An additional payment of up to
$100,000 is due depending on whether Sportservice's development costs for its
leasehold improvements and food service assets do not exceed the estimate of
$3.85 million. The agreement has a number of other terms and conditions
including a requirement that SAGC and the LLC must develop and construct the
SportPark in accordance with certain specifications provided to Sportservice,
and provide all necessary building structure and shell components. The
Company must operate the SportPark on a year-round, seven days a week basis
throughout the term of the agreement.
The Company has entered into a two year agreement with Integrated Sports
International ("ISI") whereby ISI has been retained to assist the Company in
obtaining corporate sponsorship for various areas of the SportPark.
The Company is involved in certain litigation as both plaintiff and defendant
related to its business activities. Management, based upon consultation with
legal counsel, does not believe that the resolution of these matters will have
a materially adverse effect upon the Company.
17
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This Report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. Among others, such
forward-looking statements include statements with respect to (i) the
availability to the Company of additional equity and/or debt proceeds on terms
acceptable to the Company and at the times necessary to satisfy capital
expenditure, debt repayment and other requirements, (ii) the availability of
operating cash flow in amounts and at the times anticipated by management,
(iii) the adequacy of budgeted amounts for capital expenditure projects and
the adequacy of the Company's liquidity and capital resources generally, and
(iv) the anticipated time of completion of capital projects.
These forward-looking statements involve important risks and uncertainties,
many of which will be beyond the control of the Company, and which could
significantly affect anticipated future results, both short-term and
long-term. As a result, actual results may differ, in some cases materially,
from those anticipated or contemplated by forward-looking statements in this
Report. In addition to the cautionary statements included in this section and
elsewhere throughout this Report, attention is directed to the cautionary
statements included in the Company's other publicly available reports filed
with the Securities and Exchange Commission under the Securities Exchange Act
of 1934.
The Company's continuing operations consist solely of the retail location on
Rainbow Boulevard in Las Vegas, Nevada and the operations of Saint Andrews
Golf Corporation ("SAGC") which is currently involved in the development of
sport-oriented theme parks under the name "All-American SportPark".
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
REVENUES. Revenues decreased to $.9 million in 1998 from $1.3 million in
1997. Revenue for the Rainbow store decreased by $50,000 to $881,000 with the
remainder of the decrease of $386,000 due to the sale of the franchise
operations.
COST OF REVENUE. Retail cost of sales decreased by $340,000 to $671,000 in
1998. This is due primarily to an $11,000 increase in cost of sales at the
Rainbow store in 1998 offset by the sale of the franchise operation in 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses related to continuing operations consist principally
of Company administrative payroll, All-American SportPark payroll, financing
costs, office rent, professional fees and other corporate costs. The $682,000
increase in 1998 from 1997 is primarily attributable to the general
administration of the Company and its All-American SportPark subsidiary.
INCOME TAXES. Due to operating losses, the Company has no tax provision nor
has it recorded any tax benefits. Income taxes of $575,000 relating to the
Company's sale of its franchise operations during 1997 were offset against the
gain on disposal of the discontinued operations.
18
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<PAGE>
NET LOSS. The loss from continuing operations for 1998 was $679,100 compared
to a loss of $161,000 in 1997. The losses are principally attributed
to the startup nature of the Company's new business focus involving the
development of the "All-American SportPark" Including SGA development expense.
SIX MONTHS ENDED JUNE 30, 1998 AS COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
REVENUES. Revenues decreased to $1.7 million in 1998 from $2.4 million in
1997. Revenues for Rainbow store increased by $5,000 to $1,632,000 with the
remainder of the decrease of $651,000 due to the sale of the franchise
operations. Other income decreased to $46,000 in 1998 versus $81,000 in 1997
due primarily to an insurance reimbursement 1997.
COST OF REVENUE. Retail cost of sales decreased by $303,000 to $1,253,000 in
1998. This is due primarily to a $111,000 increase in cost of sales at the
Rainbow store in 1998 with an offsetting decrease of $414,000 due to the sale
of the franchise operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses related to continuing operations consist principally
of Company administrative payroll, All-American SportPark payroll, financing
costs, office rent, professional fees and other corporate costs. Cost of the
Company and All-American SportPark including pre-opening costs are all
expensed by the Company. The $826,000 increase in 1998 from 1997 is primarily
attributable to the general administration of the Company and its All-American
SportPark subsidiary.
INCOME TAXES. Due to operating losses, the Company has no tax provision nor
has it recorded any tax benefits. Income taxes of $575,000 relating to the
Company's sale of its franchise operations during 1997 were offset against the
gain on disposal of the discontinued operations.
NET LOSS. The loss from continuing operations for 1998 was $1,072,300
compared to a loss of $917,000 in 1997. The losses are principally attributed
to the startup nature of the Company's new business focus involving the
development of the "All-American SportPark".
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had negative working capital of approximately
$10.2 million as compared to a negative working capital of approximately $1.3
million at December 31, 1997, a deficit increase of approximately $8.9
million. This increase primarily resulted from the financing of construction
costs of the All-American SportPark, which were funded primarily with short
term loans including a bank loan of $5 million, $1.05 million in notes to the
Company's chairman and majority shareholders, and borrowings of $3 million
that were forgiven when the Company sold its interest in the Callaway Golf
Center, and proceeds from the sale of $1.5 million of which $250,000 is
receivable as of June 30, 1998. Accounts payable and accrued expenses
increased approximately $4 million primarily representing outstanding balances
related to the on-going construction of the All-American SportPark.
Capital expenditures for the remainder of 1998, which relate predominantly to
construction of the All-American SportPark complex, are expected to be
approximately $3.0 million.
19
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The Company currently has not secured long-term financing for the construction
of the sports entertainment complex portion of the SportPark. The Company has
been holding discussions with a number of potential corporate sponsors who
have expressed an interest in participating in the SportPark, and management
expects that corporate sponsors will contribute a portion of the financing
needed. The Company expects to receive the balance of the financing from a
combination of sources, including outside equity and/or debt investor, and
bank financing. The Company has been holding discussions with a number of
potential financial sources concerning long term financing although no formal
commitments have yet been received. There is no assurance that required
financing will be obtained from any of these sources. Until long term
financing can be obtained the Company will continue to fund its construction
and operations with short term sources of funds. As previously discussed,
during the first six months in 1998, the Company secured $5 million in
short-term loans at an interest rate of 10% per annum from its bank.
Additionally, on March 19, 1998, SAGC obtained a $3 million short-term loan
bearing interest at a rate of 10% per annum from Callaway Golf Company. This
loan was forgiven in connection with SAGC's sale to Callaway in May 1998 of
its 80% membership interest in All-American Golf LLC. During the first six
months of 1998, the Company also borrowed an additional $1.05 million from the
Chairman. The Company has used the proceeds from these loans, sponsorship
fees and cash flow from the sale of the Callaway Golf Center towards
completing construction of the All-American SportPark.
During the six months ended June 30, 1998, operating activities provided
approximately $1.5 million of cash as compared to 1997 in which operating
activities provided approximately $322,000. Increases in outstanding vendor
invoices and other payables accounted for a majority of this increase in cash
provided.
Cash used by investing activities totaled approximately $10.7 million during
1998 versus $1.2 million in 1997. This is due to the continued construction
of the All-American SportPark in 1998. The investment in the SportPark
totaled $12 million during the six months ended June 30, 1998 versus $5.7
million for the comparable six months in 1997.
Additionally, project development costs in 1997 were offset by the proceeds on
the sale of the franchise and retail operations of approximately $4.55
million, and project development costs in 1998 were offset by proceeds on the
sale of All-American Golf of $1.25 million.
Financing activities in 1998 provided cash of approximately $9.2 million.
This resulted from proceeds of the previously described loans and notes and
proceeds from the sale of the Callaway Golf Center offset by the repayment of
the $668,000 bank line of credit and $400,000 in notes payable. In the 1997
period, approximately $0.9 million of cash was provided which was offset by
repayment of bank line of credit and various notes.
Cash flows from operations in 1998 will be limited to those generated by the
remaining one Company-owned retail store, and therefore may be negligible
until the commencement of operations at the All-American SportPark which is
expected to occur in August 1998.
DISCONTINUED OPERATIONS
On February 26, 1997, the Company and SAGC sold certain assets and transferred
certain liabilities to an unrelated buyer. The total consideration received
was approximately $5.3 million of which approximately $2.76 million was
20
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allocated to the Company. Specifically, the Company sold all of its interest
in its franchise business, including its rights under agreements with
franchisees, the rights to franchise such stores and the rights to related
trademarks. The buyer also assumed certain trade payables of the two
companies. The sale of all assets, liabilities and rights related to the
franchise and wholesale businesses have been presented as "Discontinued
Operations" in the accompanying condensed consolidated financial statements.
During 1997, SAGC and Callaway Golf Company ("Callaway") formed All-American
Golf LLC, a California limited liability company to construct, manage and
operate the "Callaway Golf Center", a premier golf facility at the site of the
All-American SportPark. SAGC contributed the value of expenses incurred
relating to the design and construction of the golf center plus cash in the
combined amount of $3 million for 80% of the membership units. Callaway
contributed equity capital of $750,000 and loaned the LLC $5.25 million for
the remaining 20% of the membership units (the "Callaway loan").
The Callaway loan bears interest at a rate of 10 percent per annum with
monthly interest payments commencing 60 days after the opening of the golf
center (which occurred on October 1, 1997). All-American Golf was unable to
make the interest payments due and, accordingly, on March 18, 1998, entered
into a forbearance agreement with Callaway Golf Company which cured the
default and established terms to repay the amounts in arrears.
On May 5, 1998, SAGC sold its 80% interest in All-American Golf to Callaway in
exchange for $1.5 million in cash and the cancellation of a $3 million
collateralized note evidencing amounts which Callaway had loaned to the
Company in March 1998 by Callaway, and related accrued interest thereon. Of
the consideration, $500,000 was withheld by Callaway until that it has secured
all rights necessary to operate the Callaway Golf Center, of which $250,000
was collected by June 30, 1998. In connection with the sale of its membership
units, SAGC resigned as manager of the LLC and agreed not to compete with the
Callaway Golf Center in Clark County, Nevada for a period of two years. The
agreement also provides for a buy back option to the Company which enables it
to repurchase its 80% equity ownership for a period of 2 years on essentially
the same financial terms that it sold its interest to the Callaway Golf
Company. The Company recorded a gain of $1,638,900 on the disposal of its 80%
interest in All-American Golf.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The Company has
assessed these issues as they relate to the Company, and the Company believes
that the year 2000 problem will not be material to the Company.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
21
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Item 6. Exhibits and Reports on Form 8-K. None.
(a) Exhibits.
EXHIBIT
NUMBER DESCRIPTION LOCATION
27 Financial Data Schedule Filed herewith
electronically
22
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LAS VEGAS DISCOUNT GOLF & TENNIS, INC.
Date: August 12, 1998 By:/s/ Voss Boreta
Voss Boreta, President and Chief
Financial Officer
23
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EXHIBIT INDEX
EXHIBIT METHOD OF FILING
- ------- -----------------------------
27. FINANCIAL DATA SCHEDULE Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited condensed consolidated balance sheets and unaudited condensed
consolidated statements of income found on pages 3, 4 and 5 of the Company's
Form 10-QSB for the year to date, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 92,000
<SECURITIES> 0
<RECEIVABLES> 395,000
<ALLOWANCES> 0
<INVENTORY> 635,000
<CURRENT-ASSETS> 1,423,000
<PP&E> 296,000
<DEPRECIATION> 19,000
<TOTAL-ASSETS> 22,271,800
<CURRENT-LIABILITIES> 11,573,250
<BONDS> 0
<COMMON> 3,876,000
0
0
<OTHER-SE> (1,675,300)
<TOTAL-LIABILITY-AND-EQUITY> 22,271,800
<SALES> 1,632,000
<TOTAL-REVENUES> 1,691,000
<CGS> 1,253,000
<TOTAL-COSTS> 1,253,000
<OTHER-EXPENSES> 1,993,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,553,300)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,072,300)
<DISCONTINUED> 891,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (181,300)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
